Today we will look at why we think Arizona Lithium shares have good potential upside in our AZL share price forecast and analysis.
Arizona Lithium Limited (ASX:AZL) is an Australia-headquartered mineral exploration and development company focused on exploring for lithium at its Big Sandy and Lordsburg Projects in the states of Arizona and New Mexico respectively in the USA.
The company has identified a current resource of 320,800 tons of Lithium Carbonate Equivalent (LCE) from 4% of the landholding at Big Sandy.
Testing has achieved high-quality battery-grade Lithium Carbonate of 99.8% purity (Battery Grade > 99.5% purity) at Big Sandy.
The Arizona Lithium stock is down -38.18% over the last 12 months as compared to a -3.51% loss for the ASX200.
Table of Contents
- 1 About Arizona Lithium shares (ASX:AZL)
- 2 Strategic Acquisition Boosts AZL’s Lithium Resource By 1200%
- 3 Strategic Alliance With Navajo Nation May Expedite Project Implementation
- 4 Lithium Carbonate market remains tight due to soaring demand for EVs
- 5 Arizona Lithium shares (ASX:AZL) Financials
- 6 Arizona Lithium shares (ASX:AZL) Valuation
- 7 AZL Is Making The Right Moves To Grow And Implement Lithium Production Expeditiously
Arizona Lithium is exploring for lithium at its Big Sandy project in Arizona and the Lordsburg Project in New Mexico, in the USA.
The Big Sandy project is strategically located in the proximity of the Nikola Coolidge Manufacturing Facility, Lucid Motors AMP Facility, and proposed Kore Power “Koreplex” Facility (in Arizona) and the Tesla Gigafactory, which is located approximately 960km away by sealed interstate highway to the north-west in Nevada.
The development of lithium projects is a priority for Federal U.S. agencies following the signing of the Executive Order ‘Federal Strategy to Ensure Secure and Reliable Supplies of Critical Minerals’ on 20 December 2017.
The Big Sandy Project has a potential 15-20 years mine life with further opportunity to grow and is highly strategically located within Arizona’s emerging Battery Region.
Meanwhile, Lordsburg is a drill-ready lithium brine project located in South-West New Mexico.
A scoping study of Big Sandy which commenced in February 2022 was duly completed by October 2022, and reportedly was encouraging enough that the company fast-tracked its definitive feasibility study (DFS) and launched it in November 2022.
The October scoping study is said to have revealed robust economics and identified “unique opportunities” for the project using new extraction technology, which AZL will include in the DFS.
The DFS is expected to be completed in a year’s time.
At the current AZL share price, Arizona Lithium shares (ASX:AZL) are currently trading at a market capitalisation of A$163.72M.
Strategic Acquisition Boosts AZL’s Lithium Resource By 1200%
In December, AZL issued 500 million ordinary fully paid shares as partial consideration for the acquisition of 100% of Prairie Lithium Corporation, one of Canada’s most advanced lithium brine companies, and one of the most advanced Direct Lithium Extraction (DLE) projects globally.
The total consideration is approximately C$70.6 million, consisting of C$40.0 million in cash and 500 million common shares of AZL at a deemed price of C$0.0612 per share.
Prairie Lithium is the owner of a lithium project located in the Williston Basin of Saskatchewan, Canada, one of the world’s top mining-friendly jurisdictions, and has easy access to key infrastructure including electricity, natural gas, fresh water, paved highways, and railroads.
Prairie’s JORC Inferred Mineral Resource is 4.1 million tonnes of Lithium Carbonate Equivalent (LCE) at 111 mg/L Li, the highest quality inferred lithium brine resource in Canada discovered to date.
Taken with Big Sandy, the Prairie acquisition would boost the company’s global lithium Resource to 4.4 MT, or a 1200% increase.
Prairie is a lithium brine resource and it is possible that its production may start sooner (though in smaller installments) compared to Big Sandy.
Big Sandy is a sedimentary clay deposit that is likely to come on line only in 2027/28.
The deal would also diversify the company’s lithium resource and its geographical location and complements Arizona Lithium’s strategy of developing a high-tech Lithium Research Centre in Tempe, Arizona.
The latter will function as a technology incubator focused on the extraction of lithium from a variety of ores and brines.
Prairie also comes with a proprietary Direct Lithium Extraction technology [the Prairie Lithium Ion Exchange (PLIX), an ion-exchange material] that selectively removes lithium from brines and ore bodies, and has shown promising results with material from Big Sandy.
PLIX may have global application, it is estimated.
Furthermore, Arizona Lithium (ASX:AZL) will have access to Prairie’s technical team of geologists, engineers, chemists, drilling managers, and other technical roles which can assist in the development of the Prairie Lithium resource, particularly through the use of the Lithium Research Centre.
This team can as well expedite the sustainable development of the Big Sandy lithium project in Arizona.
The Navajo Nation is the largest Indian reservation in the United States, comprising about 16 million acres, or about 25,000 square miles, approximately the size of the state of West Virginia.
The Navajo Nation extends into the states of Utah, Arizona and New Mexico, covering over 27,000 square miles of unparalleled beauty.
In December, Arizona Lithium (ASX:AZL) entered a strategic alliance with Navajo Transitional Energy Company, LLC (NTEC), wholly owned by the Navajo Nation, following which NTEC will manage all permitting and contract mining services at the Big Sandy Lithium Project.
NTEC owns the Navajo Mine, currently holds a 7% interest in the Four Corners Power Plant, and also owns and operates mines in Montana and Wyoming.
It is therefore highly experienced in energy projects and mining operations such as Big Sandy.
Effectively, NTEC will take over the operational development of Big Sandy and will manage all aspects from the permitting requirements for the additional exploratory drilling process through to mine design, environmental assessments, construction, and contract mining operations for the Project.
The agreement signals a mutually beneficial alignment of interests because NTEC is committed to the development of the economic, financial, social, and cultural well-being of the Navajo People and the Navajo Nation, with its operations providing thousands of jobs and supporting numerous community benefit initiatives.
The agreement will result in the development of Big Sandy with a priority on appropriate cultural and environmental safeguarding throughout the process.
At the same time, having the Navajo Nation as a stakeholder will ensure the speedy implementation of the project.
It may be recalled that in April of 2021, the Hualapai tribal council passed a resolution strongly objecting to the proposed mining claim area, citing devastating impacts to significant cultural and spiritual resources.
Note, however, that NTEC will become a substantial AZL shareholder by meeting certain mining development milestones, and Vern Lund, Managing Director of NTEC, will join the AZL Board.
Lithium Carbonate market remains tight due to soaring demand for EVs
The lithium carbonate market remained bullish in the third quarter of 2022 and onwards.
Strong demand for EVs in the North American region has led to a tight demand-supply scenario.
It is estimated that by 2035, at least 59 new lithium mines are needed with minimum capacity of 45KTPA to meet projected demand.
However, by the close of 2022, the momentum on lithium prices cooled a bit, primarily due to concerns surrounding EV offtake in China following from the COVID-19 spread.
The fundamental story on lithium remains unchanged, however, and lithium producers are expected to be comfortably profitable.
Source: Ioneer Presentation
Moreover, it has been pointed out by Standard Lithium that new EV tax credit rules in the Inflation Reduction Act of 2022 are expected to both deepen the supply deficit and significantly increase capital spending on lithium extraction and refining.
These factors point to a robust demand and pricing outlook for AZL when production commences.
As of September 30, 2022, AZL held cash of A$50.37 million with most of it held as call deposits.
On completion of the scoping study, which was announced in October, the company said it was “well capitalized to further advance the project with current cash reserves exceeding $50 million.”
It may be noted that the company had raised $12 million in July 2022 via a placement to institutional and sophisticated investors at the AZL share price of $0.07 per share for land purchase of its lithium processing plant, expansion and operation of the Lithium Research Center, and for IP protection over lithium processing technology.
In December, AZL issued 500 million fully paid shares towards its cash-and-stock acquisition of Prairie Lithium.
We compare AZL to:
• Lake Resources (ASX: LKE), which has its lithium (brine) resources located in the Lithium Triangle in Argentina
• Standard Lithium (NYSE: SLI, TSX.V: SLI), which has its lithium (brine) resources located in Arkansas, USA
Metric | Arizona Lithium Ltd (ASX:AZL) | Lake Resources (ASX:LKE) | Standard Lithium (NYSE: SLI,TSX.V:SLI) |
---|---|---|---|
Lithium Resource | 4.4 MT | 4.4 MT | 4.3 MT |
Market Capitalization | A$164M | A$1.16B | C$853M (A$921M) |
Price /Book (MRQ)* | 3.82 | 5.13 | 3.94 |
Projected IRR | NA | 36% | 32.1% |
From the above, at the current AZL share price, it is clear that Arizona Lithium shares are the cheapest among the three companies in terms of the Price to Book metric.
At the current AZL share price, Arizona Lithium shares also has the lowest market capitalisation given the size of its lithium resource, though that may be due to the extensive time remaining for commercial production.
AZL Is Making The Right Moves To Grow And Implement Lithium Production Expeditiously
Arizona Lithium shares (ASX:AZL) has the huge advantage of its lithium resources located in North America, where demand for EVs is growing manifold.
It made a strategic and well-timed acquisition of Prairie Lithium that overnight catapulted its lithium resource by 1200%, and as well granted access to promising lithium direct extraction technology that would be sustainable for the environment.
The deal with Prairie has also bolstered AZL’s technical backup, reducing project execution risk.
By contracting project execution at Big Sandy to a company owned by the Navajo Nation, AZL has at one stroke ensured that the project would be completed as per norms and traditions acceptable to tribals, thereby nullifying the chances of project delay due to potential protests.
AZL’s projects would be supplying lithium into a historic supply deficit triggered by the energy transition and the ballooning demand for EVs globally.
Further, these projects are located in a jurisdiction that has recognized lithium as a material vital to the nation’s energy security.
Moreover, AZL is currently adequately funded and is readily supported by investors when it raises funds, as evidenced by oversubscription.
The AZL share price has lost over 38% over the past year, mainly attributable to capital dilution to fund development and acquisitions. At the current AZL share price, Arizona Lithium shares (ASX:AZL) is cheap versus its long-term potential given the demand outlook for lithium.